1002-ch22曼昆宏观经济学.pptVIP

The Short-Run Trade-off Between Inflation and Unemployment 22 In this chapter, look for the answers to these questions: How are inflation and unemployment related in the short run? In the long run? What factors alter this relationship? What is the short-run cost of reducing inflation? Why were U.S. inflation and unemployment both so low in the 1990s? Evidence for the Phillips Curve? A C T I V E L E A R N I N G 1 A numerical example Natural rate of unemployment = 5%Expected inflation = 2%In PC equation, b = 0.5 A. Plot the long-run Phillips curve. B. Find the u-rate for each of these values of actual inflation: 0%, 6%. Sketch the short-run PC. C. Suppose expected inflation rises to 4%. Repeat part B. D. Instead, suppose the natural rate falls to 4%. Draw the new long-run Phillips curve, then repeat part B. A C T I V E L E A R N I N G 1 Answers (E) The Breakdown of the Phillips Curve The 1970s Oil Price Shocks The Volcker Disinflation (E) The Greenspan Era 1986: Oil prices fell 50%. 1989-90: Unemployment fell, inflation rose. Fed raised interest rates, caused a mild recession. 1990s: Unemployment and inflation fell. 2001: Negative demand shocks created the first recession in a decade. Policymakers responded with expansionary monetary and fiscal policy. The Greenspan Era (F) Ben Bernanke’s challenges Aggregate demand shocks: Subprime mortgage crisis, falling housing prices, widespread foreclosures, financial sector troubles. Aggregate supply shocks: Rising prices of food/agricultural commodities, e.g., Corn per bushel: $2.10 in 2005-06, $5.76 in 5/2008 Rising oil prices Oil per barrel: $35 in 2/2004, $134 in 6/2008 From 6/2007 to 6/2008, unemployment rose from 4.6% to 5.5% CPI inflation rose from 2.6% to 4.9% CHAPTER SUMMARY The Phillips curve describes the short-run tradeoff between inflation and unemployment. In the long run, there is no tradeoff: inflation is determined by money growth, while unemployment equals i